Many people have gone the route of making their estates the beneficiary for their life insurance policy. Why might this request be unreasonable? Well, to start with, there are typically many costs associated. Probate costs may be as high as 5 to 10%. Estate tax on life insurance may be expensive.
When a person dies, his assets may typically pass on to beneficiaries by will, by contract, and by survivor ship. You can designate in your will who gets which possessions and place your estate as the beneficiary. Life insurance that may be payable to your estate is controlled by your will and could typically go through probate.
What is probate and why does it matter? Probate in essence means “proving,” and the court basically asks for proof that your will is good and that the property that is named will pass to the person named. This alone generally costs money, and it could be as high as 5 to 10% of the estate. Property that passes by contract will not go through the will and will not pass through probate. This is typically essential estate tax on life insurance coverage, and benefits may be reduced through this process.
For example, if you had $100,000 in assets by will, it could cost anywhere from $5,000 to $10,000 to give it to the people you want. Supposing that you had $100,000 in life insurance payable out to your estate, about another $5,000 to $10,000 could go to probate again in an estate tax on life insurance. Benefits often may go down. Read this page to find out more information on affordable life insurance.
Well, how could you avoid this estate tax on life insurance? If you named your spouse or another loved one as a beneficiary for your life insurance, the money will typically go to them instead of being levied in estate taxes on life insurance; coverage may completely go to the beneficiary at the full $100,000. Also, the proceeds should typically not be subject to creditor claims when you name a direct beneficiary to your estate. So be careful when you choose your life insurance beneficiary and check with a professional for further details. For more information on picking life insurance beneficiaries, read the article “How to Choose a Life Insurance Beneficiary”.
